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Touchstone Applied Science Associates, Inc. (TASA) |
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CEOCFO
Interview Index |
This is a printer friendly page! Touchstone Applied Science Associates
(TASA), Inc. accelerates with additional contracts and significant contract extensions in
response to the “No Child Left Behind” legislation
BIO: CEOCFOinterviews: Mr. Simon, could you please tell my readers what has happened in the past year with the company? Mr. Simon: “Well, there are a number of things that are new. We’re really starting to accelerate based upon the NCLB act. In the last year, the company has been awarded additional contracts as well as significant contract extensions from the state of Michigan to build their alternate assessment. The contract was originally a $4.5 million contract through September 2005, but we received an extension to 2007, and the contract increased by $9.5 million. Now it’s almost a $14 million contract. That’s a significant part of our business. The other growth in our business has been on the proprietary side. We have three mainstream assessment products: the Degrees of Reading Power (DRP) Program, the essence of which is a reading comprehension test; the MAC II, which is an English language proficiency assessment; and Signposts, which is an early literacy assessment system. Sales of our DRP assessments are beginning to increase significantly, and we’re taking advantage of Title I “Reading First” funding under NCLB. We just signed up Alabama, Rhode Island and Massachusetts to use our DRP test as part of their Reading First programs. The MAC II is now the state English language proficiency test in Rhode Island, Missouri and Arkansas. It’s also on the state “approved” list in New Jersey, Wisconsin, Illinois and Florida. Consequently, we’re seeing a lot of strength in both our proprietary and custom units.” CEOCFOinterviews: How many states are you currently servicing? Mr. Simon: “We provide our products and services in virtually all 50 states—either on our proprietary testing or our custom testing side. Some are provided at the state level, where we have state contracts. We also sell all of our products on a district level. On the proprietary testing side alone, we are in about 4,000 school districts across the U.S.” CEOCFOinterviews: Who designs the tests that you provide? Mr. Simon: “On the proprietary side, we determine what we believe the need is, do the research, and define the products. And we actually do all the design work. We own these products. It takes about three years to develop a new product. In custom testing, states issue Requests for Proposals (RFPs). The RFPs generally have a blueprint. They define what they expect the tests to look like. Thus, we are really doing work for hire.” CEOCFOinterviews: What do you account for the good quarter numbers in your recent financial report? Mr. Simon: “Several things. In the first quarter of the year, we had a big increase in revenues. We are hitting our stride now, we have some traction, our business is growing, and if you take a look at the first quarter of the year, you’ll see that our proprietary business was very strong. It even outpaced our custom testing business. On the proprietary side, we shipped our English proficiency assessments to the states of Arkansas, Missouri and Rhode Island. On the custom testing side, we had a big order backlog from last year. Now we are getting multi-year contracts. Going into this year, we had a backlog of business that equated to all of last year’s business. We anticipate increases throughout the year. I publicly stated last year that starting with our five-year plan initiated in 2002, we would show a 20% annual compound growth rate through 2007 and we would achieve earnings growth at an even higher rate. I still stand by that projection.” CEOCFOinterviews: Do you see the first two quarters being soft the way they’ve been in the past or do you see a more even growth pattern? Mr. Simon: “We’ve just finished our second quarter. I am very happy with both the top and bottom line. At the same time, if you replace the first half of 2003 with the first half of 2004, TASA looks much stronger. We expect continued strength throughout the year. As to the future, we are continuously working to increase our revenue stream. The fact that we generated higher revenues in the first half of 2004 is because of our custom testing unit. This unit is less affected by seasonality…and it is growing faster than our proprietary testing unit. To illustrate, in 2002, we did about 45% of our business in custom testing and 55% selling proprietary tests. In 2003, it reversed itself. We did 55% custom work and 45% selling proprietary products. The first half of 2004 parallels the mix of 2003.” CEOCFOinterviews: Do you have any new products or services? Mr. Simon: “Yes, we do. There are two parts to this: sales and service. First, we continue to bid on proposals, and this level of activity has increased significantly. Second, over the last nine months, we have expanded our scanning and scoring facilities. We’ve quadrupled the size of these facilities, which has allowed us to do several more things: (1) we are able to ‘perform’ on our large Michigan contract, which we would not have been able to do without increasing those facilities; (2) we’re doing more scanning and scoring for our core proprietary business, which has increased with the increase of our state contracts as they relate to our MAC II test; and (3) we’ve actually been aggressively seeking and securing other third-party scoring. As a result, we provide the third-party scoring for the state of Indiana end-of-year test as well as scoring for three educational publishers. So, we see the scoring business increasing significantly.” CEOCFOinterviews: How about competition? Mr. Simon: “It’s intense! Everybody wants to be in this business now. Fortunately, we really enjoy a very good reputation. We continue to bid on contracts either as prime contractor or a subcontractor. About 50% of our business on the custom testing side is as a subcontractor. Our contract in Texas, for example, is not directly with the state of Texas but with another large educational publisher. We aggressively go after business either on a direct basis or on an indirect basis, depending on its size and scope.” CEOCFOinterviews: Tell me about your subsidiary, BETA, Inc., its revenues and plans for expansion. Mr. Simon: “Our subsidiary, BETA, brought in $5.3 million in revenue last year. We see significant growth in this area. Nationwide, about 80% of assessment business is for custom products and services and 20% for proprietary. If those figures hold up for us, I suspect BETA will grow significantly. Further, I think BETA should grow at a faster rate over the next three to four years. BETA’s potential is wide open, and we continue to add staff to match its needs.” CEOCFOinterviews: In closing, what would you say to a potential investor looking at this company for the first time? Mr. Simon: “Several things. One, we really are growing at the projected 20+% compounded rate annually and our earnings should be at a higher rate. If you take a look at last year, we earned 14 cents on our continuing core business. At the end of the first quarter, our earnings rate was 21 cents. We’re continuing to increase on a quarterly basis. We again will be higher at the end of the second quarter. Clearly, our financial performance is improving. Second, we’re in the right field. There’s a lot of emphasis on education and the NCLB act right now. And if it’s not NCLB in the future, it will be something else. Third, we have very bright, aggressive people on staff. We’re going to build our business over the next three to four years. Lastly, our stock price over the last year, or from January 2003 to April 2004, has gone from $0.70 to $3.25 a share. Our trading volume has probably quadrupled over that time. It’s very important for us to have currency, because we’re in an active acquisition mode. People are beginning to recognize value. Our next big leap in revenue could be by making an acquisition. The result will be to provide enhanced value to shareholders.” CEOCFOinterviews: What are you looking for in an acquisition? Mr. Simon: “We are in the K-12 assessment business. However, there are three areas that we are exploring. We believe that there is an opportunity to look at additional custom testing companies. We think there’s an opportunity to look at scanning and scoring businesses. Similarly, we are also looking at the test-prep offshoot because that draws on the same talents used to develop assessment materials. We’re actively involved in that search right now.” CEOCFOinterviews: Thank you. disclaimers |
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